Cost Controls

Posted on: March 26, 2021

In its purest form Business’s role in an entrepreneurs life is to: make money. This money is then used to fuel other aspects of the business owner’s life from salaries to investments, expansions to renovations.

In today’s pandemic impacted world, the view on cost controls is more critical than ever before. If you are not paying attention to the cost control side of your business, you are missing a key aspect of supporting your business success strategy.

In my experience entrepreneurs often lose sight of the “cost creep” that occurs due to operational reality (also known as working in your business – not on it).

As a rule, when I was operating my firm, I spent one day each year reviewing costs for services with my providers. These include group health Insurance, cell phones and plans, fleet gas cards, landscaping, supplies costs, etc. In many cases I was able to either renegotiate rates, switch providers, or find overall reductions in costs through this review process. In one case I reduced my costs for a pre-paid expense by almost 60%, resulting in $1400.00 in retained income.

As we emerge from the pandemic, it will also be essential to keep an eye on costs that our employees may control. For restaurants this may be food costs, for offices, paper use. In my restaurant, a few years ago, a small over portioning of fries by my kitchen team, added hundred of dollars in cost in a single month, until we reset the expectation of serving size.

Savings and costs will vary depending on your industry. However, if you have experienced a slow down, conducting a re-orientation with your staff will set the stage for your success. During your re-orientation discuss key topics with your team; service standards, health and safety protocols, issues resolutions, and practical aspects of your business, such as food and/or supplies costs.

Where it is practical use cost control strategies like multiple quotes to gain the best bargaining advantage, signing multi-year commitments (at a discounted rate), switching providers, and shopping constantly for the best investment and interest rates for your money (credit or investments). 

Some entrepreneurs will be tempted to use loans to cover operating costs. I caution this approach, without having sought professional guidance on the real impact of borrowing. Your accountant will outline why it may or may not be in your best interest. A good rule of thumb for assessing impact of borrowing is to understand that for every dollar you borrow you must make 2+ dollars to cover it. One dollar covers the dollar borrowed, one dollar is needed to cover the cost of operating that the repayment dollar would have covered, and then you need to pay the interest on that dollar. So, in all, 2x more cash flow is needed to repay the borrowed funds.

Finally, be wary of deferring costs when things get tough. Unless expressly stated, pushing costs down the road can come back to haunt you, with inflated monthly payments, lump sum repayments, or balloon interest payments. The better strategy to financial health is to control all costs possible, and then – only when it is critically necessary seek credit.